COMMENT: Saudi Arabia's giga-projects are catalysts of change

The Harvard Business Review, in 2009, published an article entitled “Constant Transformation is the New Normal”, in which it asserted that “success now requires not doing it better, but mastering the ability to do it differently” all the time.

And “different” it quite literally was, when HRH The Crown Prince Mohammed Bin Salman took the stage at The Future Investment Initiative (FII 2017) and dazzled its attendees by unveiling of a series of multi-billion dollar projects, including the Red Sea Development Project, a unique, luxury tourism destination that promises to embrace nature, culture and adventure, and set new standards in sustainable development, positioning Saudi Arabia firmly on the global tourism map.

Giga-projects – a term coined to refer to development projects that exceed $10bn in cost – is but one of six different streams created by Saudi’s Public Investment Fund (PIF) around which it has structured its investment plans. This stream of investment represents a key driver to not only achieve economic diversification but set the pillars of a healthy economy that is capable of adapting to change and growing into the future.

The three giga-projects were strategically picked to cover an array of promising economic sectors; tourism plays a critical role in any diversified economy, accounting for 10% of GDP globally. However, in Saudi Arabia, it is a mere 3.4%, and solely limited to some 18-20 million annual visitors to Makkah and Madinah. Other than religious tourism, the Saudi tourism sector is largely undeveloped, indicating that the growth potential is huge. The Red Sea Project will be a key driver in the establishment of the new Saudi tourism sector, and intends to tap into the luxury travel segment: the fastest growing segment of the global travel industry at approximately 18% since 2014 - nearly twice as much as international travel in general. Other projects will tap into technology and innovation (NEOM) and the development of entertainment and theme parks well suited to the local population (Qiddiya).

Fast-forward a couple of years and those responsible for delivering on the promises face questions about the Kingdom’s ability to execute the multiple giga-projects in its pipeline. Is the nation on track to achieve its ambitious dreams?

Even before announcing the approval of its groundbreaking master plan in December 2018 and commencing operations at its Base Camp in early February this year, preparatory work had been underway at The Red Sea Development Company (TRSDC) to enable the project. Primarily, as with all new projects, a team of experts from the CEO down to the receptionist must be recruited and inducted into the organization, and sourcing the right people is no small task.

For the Red Sea Project, there was an even bigger challenge to meet: the commitment to sustainability. Tourism, properly harnessed, can and must serve the needs of the environment if it is to be sustainable in the long term. The Red Sea Project is underpinned by a desire to set new standards in sustainable development, respecting the natural world, creating opportunities for the local communities and protecting the destination for future generations.

A comprehensive marine spatial planning simulation, the largest ever undertaken, helped to shape the master plan, ensuring that development, construction and ultimately the operational upkeep and flow of visitors through the destination will not simply preserve and protect the flourishing ecosystems at the site but actively enhance them. The master plan commits to a net positive conservation benefit of up to 30% of current values, based on a number of innovative solutions including the implementation of sensors throughout the destination which will monitor environmental markers to provide consistent feedback of the surrounding waters as well as aridity and wind patterns inland.

Alongside the work undertaken by the individual organisations responsible for the delivery of the giga-projects, is the ongoing support of the Saudi government. For example, significant steps forward have been taken to assist TRSDC with the development of a framework and the processes required to support the project, which will be addressed under the regulatory framework of the Special Economic Zone (SEZ).

The government has repeatedly expressed its desire to establish the SEZ, which will be designed to attract both investors and visitors from around the globe. The SEZ will attract international tourists with relaxed social norms and foster an investor-friendly environment with world-class standards.

There are numerous positive indicators that the government is on track to deliver on a series of other promises to support a growing tourism sector. In December 2018, the Saudi government for the first time issued e-visas for tourists solely for the 2018 Saudi Ad Diriyah E-Prix debut in its capital city Riyadh, which witnessed some 1,000 tourists from over 80 nationalities in attendance for the three-day racing event. Additional enablers undertaken in an effort to ensure the success of the giga-projects include the upgrade of existing airports, such as a three-phase project expected to increase King Abdulaziz International Airport (KAIA) in Jeddah’s annual passenger handling capacity to 100 million in its final stage, as well as a commitment to establish new airports to further facilitate access and streamline entry processes for the benefit of visitors, investors and partners.

This is the positive ripple effect that giga-projects can have on the economy, and on the country as a whole. TRSDC will create jobs, cultivate entrepreneurial activity and drive economic development in line with Vision 2030’s objectives, and by completion, will directly employ around 35,000 people and support an equivalent number of jobs in the wider community by creating opportunities for local businesses, entrepreneurs and supporting industries. It is anticipated that this project alone will contribute SAR 22 billion ($5.87bn) to Saudi Arabia’s annual GDP once operating at a steady state.

Interaction with thought leaders and experts from the wider international community will support the transfer of knowledge to local Saudis which, when coupled with the homegrown knowledge of their home and a natural affiliation with hospitality, will develop best-in-class talent within the Kingdom.

The foundations for success for all three giga-projects are in place, underwritten by investment from the Public Investment Fund.  The positive response from the investment community, both domestic and international, has been overwhelming, due in part to the potential for huge financial reward, but also because of the uniqueness of the projects and the opportunity to play a role in the historic changes taking place in one of the world’s most vibrant fast-developing markets.

Jay Rosen joined The Red Sea Development Company as the head of finance and investments in May 2018, and is responsible for driving long-term strategic value by planning, implementing, managing and controlling all financial and investment activities related to the company. Rosen was a member of the investment teams at both Interstate Hotels & Resorts and Hyatt Hotels & Resorts, where he focused on acquisitions and asset management, before joining the HNW family, to oversee creating, planning, financing, and developing a $3.5 billion destination resort development in The Bahamas, Baha Mar. Leading his own investment and advisory firm, JRO Capital Advisors, LLC, he utilised his extensive experience in hospitality and mixed-use assets to provide investment and advisory services across multiple sectors in North America, the Caribbean, and Middle East. He holds a Bachelor of Science degree from Cornell University’s School of Hotel Administration where he concentrated on real estate finance. Rosen will be speaking at the Arabian Hotel Investment Conference on 9-11 April, 2019.